Europe avoids winter energy-supply disruptions with milder weather, more coal use
Originally published at Europe in Review on March, 2023
Europe has avoided major energy-supply disruptions this winter as cheaper fuel to produce power and warmer weather eased the strain on power stations and grids, despite the abrupt curtailment of Russian gas shipments resulting from sanctions after Moscow’s invasion of Ukraine last year.
No major heat or power disruptions were reported in February despite the latest curtailment of Russian energy supplies. A European Union-wide ban on Russian diesel and other refined products went into effect on February 5, following similar restrictions on seaborne EU crude oil intake, implemented on December 5. The latest ban was part of the sixth package of Russian sanctions adopted by the EU on June 3.[EC] Euroweekly] [La Vanguardia][EC]
Europe has benefitted from gasoline stockpiling by EU governments last year.
Bloomberg reported on February 13 that Sweden downgraded its risk of power cuts to “low” in a sign that the worst of the region’s supply crisis has passed. Power from Germany’s Emsland reactor before its final closure in April, along with a unit in Slovakia, has been beneficial, according to Swiss trader Axpo Solutions AG. [Bloomberg]
This has had a positive impact on prices. European gasoline prices were down 80 percent from the peak of summer 2022 and are in line with global prices. European Natural gas prices declined to a 17-month low in mid February to about EUR 51 per megawatt hour (MWh), compared with over EUR 300 in August when Russia announced the closure of the Nord Stream 1 pipeline. Power prices have followed gas lower across Europe.[GPP][EC][Bloomberg]
European energy producers are also turning to different suppliers and routes for their oil imports.
Polish oil refiner PK Orlen said it would be able to fully replace suspended Russian oil shipments with seaborne imports through its northern port of Gdansk. Russia suspended all oil exports to Europe through Poland via the Druzhba pipeline on February 25 following delivery of the first Polish Leopard tank to Ukraine. [Reuters] [Al Jazeera]
Norway is increasingly filling the void, sending the equivalent of an additional 720,000 barrels per day to Europe from the giant offshore Johan Sverdrup oil field in the North Sea in February. That is almost double the output from the start of production in 2019. [Rigzone] [Reuters]
Price ceiling
The Group of Seven industrialised countries, the European Union and Australia in February set a ceiling for the price at which nations outside of the coalition may purchase seaborne Russian diesel and other refined petroleum products and still benefit from Western shipping and financial facilities.
The price cap coalition, which is composed of Australia, Canada, the EU, Japan, the UK and the US, seeks to deplete Russian President Vladimir Putin’s war chest amid Moscow’s ongoing hostilities in Ukraine.
Despite this, large shipments of Russian diesel have made their way to North Africa in recent weeks, where industry observers expect them to be blended with North African refined products and re-exported to Europe under North African labels of origin at higher prices. [CNBC]
“I would say that the main development of the past two weeks when it comes to Russian diesel has been happening not in Europe, but in North Africa,” Viktor Katona, lead crude analyst at Kpler, told CNBC’s “Squawk Box Europe.” [CNBC]
Katona said North African countries, who are not a part of the coalition, were expected to receive at least 6 million barrels of ultra-low sulphur diesel from Russia, estimating that this was roughly one-quarter of what the European Union used to purchase from Moscow. [CNBC]
IEA warning
While the end of Russian oil and gas exports to Europe has been largely compensated for over the past year, the growth in global oil demand is expected to push prices higher. Energy futures prices are rising, indicating that while traders believe that the risk to winter energy supplies in Europe is fading, future demand will be strong. Gasoline and diesel prices are expected to increase this year.
The International Energy Association (IEA) said in February that global oil demand would rebound significantly with the post COVID-19 reopening of the Chinese economy. The IEA has warned that record demand may outstrip supply at a time when there has been a lag in oil and gas investments. [IEA]
Oil majors are now adjusting their plans to expand exploration and production activity further than forecasted last year.
Bernard Looney, CEO of UK oil giant BP told investors on February 9 that the company would slow its transition from oil and gas production to renewable energy, increasing near term oil and gas exploration and production to address rising global demand. [FT]
(rw/gc)